Inflation Hedging for Absolute Beginners

Gary Knapp, CFA, Trustee of the Pramerica Retirement Savings Plan, speaks to Finance IQ about Inflation Hedging for Absolute Beginners – offering a snapshot of why it is so high on the pension funds agenda nowadays
By: IQPC
 
Aug. 24, 2012 - PRLog -- Finance IQ: Gary, welcome to the show. How are you today?

G Knapp: Very good. Hello.

Finance IQ: Glad you could join us. Now, I understand that you’ll be delivering a session on the Inflation Hedging for Absolute Beginners. So, in this interview, it would be good to get a quick snapshot of this area. So, I’ve got five questions for you today. First of all, why, Gary, is inflation hedging so high on pension funds’ agenda nowadays?

G Knapp: Well, I think many things have moved to the agenda just due to the general volatility in capital markets. But inflation in particular affects those schemes with indexed benefits, benefits that change where changes from planned inflation can significantly change the liability values. So, for example, rising inflation perhaps from current economic stimulus, may raise future benefits and asset returns may not keep up or even falling inflation may not cause benefits to fall, but this also usually means lower interest rates and that can increase liability values.

The second thing that makes it very important these days is people have realised that inflation risk is linked to the longevity assumptions for the plan. So, even a little unanticipated inflation combined with an unanticipated increase in the longevity of the plan’s beneficiaries can require significantly increased contributions to keep a scheme healthy.

To download this inteview in full, in podcast or transcript format please visit: http://www.pensionfundderiskingsummit.com/redforms.aspx?i... &utm_medium=HWOnline&utm_source=Linked In&MAC=IGJ_21334.001_LI
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Source:IQPC
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Tags:Pensions, Longevity, Finance, Banking, Inflation Hedging
Industry:Financial
Location:England
Subject:Features
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